Fin 300 Chapter 12 Final

The return earned in an average year over a multiyear period is called the _____ average return. A.) Arithmetic B.) Standard C.) Variant D.) Geometric E.) Real

A.) Arithmetic

Last year, T-bills returned 2 percent while your investment in large-company stocks earned an average of 5 percent. Which one of the following terms refers to the difference between these two rates of return? A.) Risk premium B.) Geometric return C.) Arithmetic D.) Standard deviation E.) Variance

A.) Risk premium

Which one of the following earned the highest risk premium over the period 1926-2013? A.) Long-term corporate bonds B.) U.S. Treasury bills C.) Small-company stocks D.) Large-company stocks E.) Long-term government bonds

C.) Small-company stocks

Small-company stocks, as the term is used in the textbook, are best defined as the: A.) 500 newest corporations in the U.S. B.) Firms whose stock trades otc. C.) Smallest twenty percent of the firms listed on the NYSE. D.) Smallest twenty-five percent of the firms listed on NASDAQ. E.) Firms whose stock is listed on NASDAQ.

C.) Smallest twenty percent of the firms listed on the NYSE.

Which one of the following statements is correct concerning market efficiency? A.) Real asset markets are more efficient than financial markets. B.) If a market is efficient, arbitrage opportunities should be common. C.) In an efficient market, some market participants will have an advantage over others. D.) A firm will generally receive a fair price when it issues new shares of stock if the market is efficient. E.) New information will gradually be reflected in a stock's price to avoid any sudden change in the price of the stock if the market is efficient.

D.) A firm will generally receive a fair price when it issues new shares of stock if the market is efficient.

The average compound return earned per year over a multiyear period is called the _____ average return. A.) Arithmetic B.) Standard C.) Variant D.) Geometric C.) Real

D.) Geometric

The U.S. Securities and Exchange Commission periodically charges individuals with insider trading and claims those individuals have made unfair profits. Given this, you would be most apt to argue that the markets are less than _____ form efficient. A.) Weak B.) Semi weak C.) Semi strong D.) Strong E.) Perfect

D.) Strong

Inside information has the least value when financial markets are: A.) Weak form efficient. B.) Semi weak form efficient. C.) Semi strong form efficient. D.) Strong form efficient. E.) Inefficient.

D.) Strong form efficient.

Which one of the following statements is correct concerning market efficiency? A.) Real asset markets are more efficient than financial markets. B.) If a market is efficient, arbitrage opportunities should be common. C.) In an efficient market, some market participants will have an advantage over others. D.) A firm will generally receive a fair price when it issues new shares of stock if the market is efficient. E.) New information will gradually be reflected in a stock's price to avoid any sudden change in the price of the stock if the market is efficient.

E.) New information will gradually be reflected in a stock's price to avoid any sudden change in the price of the stock if the market is efficient.

Which one of the following is the most likely reason why a stock price might not react at all on the day that new information related to the stock's issuer is released? Assume the market is semi strong form efficient. A.) Company insiders were aware of the information prior to the announcement B.) Investors do not pay attention to daily news C.) Investors tend to overreact D.) The news was positive E.) The information was expected

E.) The information was expected

Assume all stock prices fairly reflect all of the available information on those stocks. Which one of the following terms best defines the stock market under these conditions? A.) Riskless market B.) Evenly distributed market C.) Zero volatility market D.) Blume's market E.) Efficient capital market

Efficient capital market

fficient financial markets fluctuate continuously because: A.) The markets are continually reacting to old information as that information is absorbed. B.) The markets are continually reacting to new information. C.) Arbitrage trading is limited. D.) Current trading systems require human intervention. E.) Investments produce varying levels of net present values.

The markets are continually reacting to new information.